There are many examples in the art of computerised, automated trading systems which enable parties to buy and sell products by entry of trading information. Trading systems are widely used in the financial industry, for example, to trade financial products such as equities, commodities, FX products and other financial instruments. One example of a known trading system used to trade FX spot is disclosed in U.S. Pat. No. 5,375,055 of Togher et al. The system described in this publication is an anonymous trading system in which counterparties submit orders into the market without revealing their identity. A party trading on the system does not know the identity of a counterparty to a deal until the deal has been completed. To avoid parties entering into trades with parties they consider to be untrustworthy, the system uses bilateral credit limits. Each party submits details of the credit they extend to each other possible counterparty on the system. If a party does not wish to trade with a certain counterparty they extend no credit to that counterparty. The system filters visible quotes (bids and offers) entered into the system and only displays to a given counterparty, visible quotes originating from parties with whom they have bilateral credit. The determination of whether a quote should be seen is made on the basis of a yes/no credit matrix, but before a deal is completed the credit of each counterparty to the deal is check to ensure that both have sufficient credit for the amount of the deal. If they do not, the amount of the deal may be reduced to conform to the credit available.
The system disclosed in U.S. Pat. No. 5,375,055 has been embodied for many years in the EBS Spot trading system operated by EBS Group Limited of London UK. The system comprises a group of matching engines or arbitrators which receive quote information from trader devices on the systems and match quotes to complete deals, subject to credit checking. The arbitrators also distribute market data to trader devices via an intermediate node which prepares a market view to enable traders to see the quotes that are being made by other traders in the market as well as providing them with other information regarding the state of the market. The EBS system only shows the trader devices the best price that they can deal a regular amount, defined as a basic volume in the instrument being traded, for example $10 Million; the best dealable price available, which might be for a smaller volume, and the best price on the system, which will be different if the trading floor to which the trader device is attached does not have bilateral credit with the provider of the quote.
In the Tog her system, market distributors prepare individual market views for each trading floor based on their credit, so that each trading floor will see a different, personalised view of the market. The market views are distributed via bank nodes which hold actual credit limits and which perform the final credit checks before a deal is completed. The trader devices may be conventional workstations through which traders input quoted, usually via a dedicated keypad and which include a display of market information enabling the trader to monitor the market and so make trading decisions. Alternatively, there may be automated trading interfaces which are computers which submit orders into the market under the control of a trading model or algorithm which responds to market data received from the system. In a more recent version of the system, the market distribution and bank node functions are integrated within broker nodes.
In any trading system there exists an issue of fairness in the distribution of quotes which can be traded. If one trader sees a quote before another trader they are able to deal that quote before it has been seen by that trader. If this advantage is built into the system the system lacks credibility and many parties will not see the benefit of trading on it. Issues of quote distribution are not material in slow moving markets, or in systems where quotes are guaranteed to be available to a certain period of time, such as is the case in many Internet based systems in which latency is hard to control. However, in very fast moving markets such as the interbank FX spot market they are critical.
The relative time at which quotes are received by trader devices depends partly on the location of the trading device with respect to the distribution device, in this case the arbitrator, and partly on the manner in which the quotes are distributed. As messages from the system take a finite time to travel to the trader terminals, those terminals that are physically closer to the arbitrator have an advantage. In practice, many of the trading floors using the EBS system are concentrated around the physical location of the arbitrators which are in the major FX trading centres: London. New York and Tokyo. In the Togher system, prices are distributed to trader devices every second with the order of distribution being determined by when the trading floor logged on to the system. Thus one trading floor may log on at 80 mS past the second and another trading floor at 120 mS past the second. The floors will always have quotes distributed to them at 80 and 120 mS past the second respectively. If a new quote is available on the arbitrator for distribution at 60 mS past the second, the 80 mS trading floor will see it first and be able to trade it first. If a new quote is available at 100 mS, the 120 mS trading device will see it first as the 80 mS device will not see it for 980 mS, 960 mS after the 120 mS device. Situations can arise where, for a while, one trading floor is repeatedly seeing quotes slightly after another trading floor. This situation can last for a long time and is not limited to floors receiving data from the same source. It could be caused by proximity to floors on other market distributors. A trading floor's relative position is determined by when the floor's banknode first connects to an arbitrator after an arbitrator restart.
More recently the architecture of the EBS system has been altered and the market distributors and market access nodes, or bank nodes, of the Togher system have been replaced by broking nodes. Broking nodes, or brokers, sit logically between the trading devices and the arbitrators and are responsible for a number of system functions, including distribution of quotes to the trader devices, as well as the submission of hits and quotes to the arbitrators, credit check and the storage of trade settlement instructions. Unlike the distribution system of the architecture disclosed in U.S. Pat. No. 5,375,055, the brokers distribute quotes received from the arbitrator to which they are connected once per second. The broker receives the quotes from the arbitrators, calculates the market view for each of the trading floors connected to it and distributes the market view for each trading floor, in turn, as quickly as it can. There are two key differences in this approach, both of which lead to fairness problems. First, the market views are prepared from the same quote information received from the arbitrator. In the previous version, market views were prepared from the quote information at the particular slot assigned to the trading floor that was slightly different for each floor. Second, as the market views are distributed in turn, a particular trading floor will always receive its data at a fixed time apart from any other trading floor. This can lead to a situation where, for example, a large trading floor having the highest speed communications available, and very quickly responding automated trading interfaces receives its data a little before a smaller trading floor which lower specification communications and a trading floor having only manual traders who are slower to react than computerised trading interfaces. The result is that the smaller floor will miss the quotes they want to hit every time the larger floor wants to trade them as the larger floor will have hit the quotes by the time the smaller floor sees them. This is disadvantageous to the smaller floor and leads to perceptions of unfairness in the system which can cast doubt over the integrity of the system. The problem may be characterised as one of long term firing proximity. It is the same problem as arises with the Togher architecture, as described above but is actually worse as a trading floor's position with respect to other floors on the broker is fixed and does not change when the floor logs on again, for example on the next trading day.
A further problem is that some floors will receive data a relatively long time after it was provided by the arbitrator and the market view was calculated. Regardless of the problems of others connected to the broker receiving the data first, the data is now ageing. This problem may be referred to as one of computation to delivery latency.